Economics Principles - Problems - Operation and Policies

Quetion: Discuss about the case study Economics for Principles, Problems, Operation and Policies. Answer: Introduction: The U.S firm will continue its operation even when it faces bankruptcy because it is able to retrieve the fixed cost of operation that is it is above the break-even point. Break-even point is that situation where the total revenue earned by the firm is exactly equal to their total investment (Rios, McConnell and Brue, 2013). The moment when it cannot retrieve the fixed cost, that is when its revenue is much below break-even point, it shuts down its operation. Producing anything at the minimum possible cost is known as Productive Efficiency. On other hand, if theres equilibrium between the consumers preference and economys production is known as allocative efficiency (Baumol and Blinder, 2015). Under perfect competition, as there are umpteen brands producing cigarettes. So, an individual company cannot influence the price. Hence, consumers preferable brands are always available and at affordable price. It necessarily does not imply that the goods produced will generate welfare in the economy. References: Baumol, W. J., Blinder, A. S. (2015).Microeconomics: Principles and policy. Cengage Learning. Rios, M. C., McConnell, C. R., Brue, S. L. (2013).Economics: Principles, problems, and policies. McGraw-Hill.